Problem Set 1
Due January 31st (Friday)
Groups up to 4 students
Problem 1 - Handmade frames are produced by a number of identical firms. Total (long-run)
monthly costs for a typical firm are given by:
ECON 465
Problem Set 2 Solutions
Chapter 5, #2
We dont know because we dont know the cost of different pizzas.
Chapter 5, #3
(a) The demand functions for the two consumer groups are
X 1 200 P if P 200
Case Study: Building the Boeing 787
Executives at the Boeing Corporation, America's largest exporter, like to say that building a large
commercial jet aircraft like the 747 or 787 involves bringing to
Econ 465
2010/11 W T2
Practice Questions for Bertrand Model
Answers will be posted on the course webpage on Feb 14
Try yourself first before you check answers.
1. Suppose firm 1 and firm 2 each produc
Suggested Answers to the Sample Final Exam
1. Product dierentiation model
Consumer zo will be indierent between buying a good from rm 1 and rm 2 if
1
20 2(0 zo )2 p1 = 20 2(1 zo )2 p2 or zo = 2 + p2 p
Econ 465
2010/11 W T2
Practice Questions of Auctions
Answers will be posted on April 7th.
1. Consider the second-price sealed-bid auction in which the seller announces a reserve
price of R. If no bidd
Chapter 1
Introduction
1
Famous Antitrust Cases
The breakup of AT&T is a decision that
has made impact on the everyday life of
Americans.
AT&T was granted a natural monopoly
status by the U.S. Governm
Concept of utility:
In the previous sections, we represented preference ordering using indifference curves.
For example, if basket A is preferred to basket B then A lies on a higher indifference
curve
Derivation of Market Demand:
This demand is the horizontal sum of quantities demanded by all the consumers in a
given market for each possible price. The locus of these sums is the market demand
curve
Characterization of Consumer Choice or Equilibrium for Interior Solution:
Slope of the indifference curve = Slope of budget constraint.
C / F = - Pf / PC
- C / F = Pf / PC
or MRSF,C = Pf / PC (for wel
Risk Averse:
Suppose the certain income = expected income. Then if U(certain time)>Expected utility
(that is, U(I) > E(U); the person is risk averse. Here, the MU of income diminishes.
Thus, the utili
Suggested Answers to PS #4
1. a. From problem set #3: T ( 40 , 40 ), V ( 52 , 34 ), q l = 30.
3 3
3 3
Since ql > V1 , the entry always happen at the equilibrium regardless of K 1 .
q1 in Subgame A:
K
Econ 465
2010/11 W T2
Sample Final Exam
- Answers will be available on the course webpage from April 8th. However, you
should try yourself first.
- You will have 2 hours and 40 minutes. You can get at
Static Games and Cournot
Competition
1
Introduction
In the majority of markets firms interact with few
competitors oligopoly market
Each firm has to consider rivals actions
strategic interaction in p
Suggested Answers to PS #3
1. This is the same game we studied in the class. Hence I will give just answers.
a. I will skip a game tree.
SPNE outcome: Player 1 takes $1 at the rst nod to end the game.
Suggested Answers to Problem Set #1
1. a. Let p1 , q1 : price and quantity on hot days, p2 , q2 : price and quantity on cool days.
On hot day:
Inverse demand function: P = 150 1 Q.
2
M ax = (150 1 q1
Suggested Answers to the Sample Midterm Exam
Answers below are very concise. You need to give more details in the exam.
Part I: the rst day
1. a. Single man: 12 2q1 = 2; q1 = 6;
Married man: 12 2q2 =
Suggested Answers to PS #2
1. Prots are computed for the case in which there is one consumer on each group. The
reservation prices for students, families, hotels, schools, young adults, and pensioners
Econ 465
2010/11 W T2
Problem Set #4
Due by April 6th at 4pm in class
You will get 5 points off in every 10 minute. No work will be accepted after 04:50pm.
1. (6 points) Consider the same Dixits model
Econ 465
2010/11 W T2
Problem Set #3
Due by March 25th at 4pm in class
You will get 5 points off in every 10 minute. No work will be accepted after 4:50pm.
1. (6 points) Textbook p. 187, #5; Add b and
Econ 465
2010/11 W T2
Sample Midterm Exam
Answers will be available on the course webpage from Feb 17th. However, I really
encourage you to solve questions for yourself first.
You wont even recognize
Suggested Answers to Practice Questions of Auctions
1. a. (i) If vi < R: a bidder i cannot obtain a positive payo in any case. Hence any bid
less than R yields zero payo and it is the best payo in thi
Engel Curves:
The ICC curves can be used to construct Engel curves.
Definition: An Engel curve is a relationship between quantity of good consumed and
income.
If the Engel curve is upward sloping, F i
Study guide questions on price function
1. Assume that the market for computers begins in equilibrium. Then, there is a decrease
in a price of Pentium processors used in the production of computers. W